Question

In: Economics

On a remote tropical island paradise there are only two consumers—Robinson and Friday. A primary consumption...

On a remote tropical island paradise there are only two consumers—Robinson and Friday. A primary consumption product in this economy is coconuts, but Robinson and Friday have different individual demands. Robinson is quite fond of coconuts, particularly for the milk; his demand function is:

qR =60−3P
where P is the price of coconuts (measured in terms of conch shells, the primary cur-

rency). Friday does not like coconuts as much as Robinson; his demand function is:qF =30−2P.

  1. (a) After a great deal of careful estimation, a team of economists has estimated coconut supply on the island as:

    P = 0.4Q.
    What do you expect the equilibrium price of coconuts to be if the coconut market

    is competitive?

  2. (b) How many coconuts do Robinson and Friday consume, respectively?

  3. (c) How much better off is Robinson than Friday under this arrangement? HINT: comparing consumer surplus might be a good way to begin your response.

  4. (d) How do your answers to (b) and (c) change if Friday unexpectedly finds a conch midden (a big pile of conch shells), which effectively changes his coconut demand function to qF′ = 100 − 4P ?

  5. (e) One way to interpret Friday’s change in demand in (d) is as an income effect. How does Friday’s additional income and his resulting demand for coconuts tell you about the characteristic of coconuts as a good? Your answer can be qualitative but should be precise. HINT: page 2-15 in the text.

Solutions

Expert Solution


Rahul Sunny answered 2 years ago
Next > < Previous

Related Solutions

Robinson Crusoeis the sole inhabitant of an uncharted island. in this paradise, Robinson's only scarce commodities...
Robinson Crusoeis the sole inhabitant of an uncharted island. in this paradise, Robinson's only scarce commodities are food and leisure. the only scarce resource is his labor. Use the following notation: X=quantity of food P = price per unit of food Y= quantity of leisure hours W= wage rate (per hour) L=24-Y = labor hours Pi=profit as a consumer, Robinson has a utility function U(X,Y) expressing his preferences between food and leisure. as a firm Robinson can transform his labor...
On a certain island there are only two goods, wheat and milk. The only scarce resource...
On a certain island there are only two goods, wheat and milk. The only scarce resource is land. There are 1,000 acres of land. An acre of land will produce either 8 units of milk or 16 units of wheat. Some citizens have lots of land; some have just a little bit. The citizens of the island all have utility functions of the form U(M, W)  MW. At every Pareto optimal allocation, 1)   What is the equation for the production...
Adam and Eve are stranded on a desert island. There are only two goods on the...
Adam and Eve are stranded on a desert island. There are only two goods on the island: Apples (A) and Bananas (B). The utility functions of Adam and Eve are U^Adam(DA, DB) = (DA)^1/2 (DB)^1/2 and U^Eve(DA, DB) = (DA)^1/2 (DB)^1/2 respectively (they have the same preferences). Total endowments on the island are 20 Apples and 60 Bananas. Adam owns all the bananas and Eve all the apples. (a) Draw the Edgeworth box for this exchange economy, including Adam and...
Consider an orange island economy that consists of only two companies: an orange company that produces...
Consider an orange island economy that consists of only two companies: an orange company that produces oranges and an orange juice company that purchases oranges from the orange company to produce orange juice. Their income statements in 2015 are as follows: Orange Company:    Wages paid to employees                           $15,000    Taxes paid to government                          $ 5,000 Sales revenue:              Oranges sold to public                        $10,000              Oranges sold to Juice Corp.                $25,000 Orange Juice Company:    Wages paid to employees                           $10,000...
Suppose Lost Island has an economy that only produces two products: guns and butter . These...
Suppose Lost Island has an economy that only produces two products: guns and butter . These points below could be shown on a production possibilities curve— the represent all major combinations of these products that this society can produce. Type of Product : Productions Alt A B C D E Guns 0 1. 2. 3. 4 Butter (1lb tub) 10 9. 7. 4. 0 1.What do you think Lost should produce at? 2. From this point, explain what the opportunity...
Consider an orange island economy that consists of only two companies: an orange company that produces...
Consider an orange island economy that consists of only two companies: an orange company that produces oranges and an orange juice company that purchases oranges from the orange company to produce orange juice. Their income statements in 2015 are as follows: Orange Company:    Wages paid to employees                           $15,000    Taxes paid to government                          $ 5,000 Sales revenue:              Oranges sold to public                        $10,000              Oranges sold to Juice Corp.                $25,000 Orange Juice Company:    Wages paid to employees                           $10,000...
Consider a public good with only two consumers, A and B. The demand function by Customer...
Consider a public good with only two consumers, A and B. The demand function by Customer A is Q = 10 - 0.5P, while the demand function by Customer B is Q = Q = 10 - 0.25P, where Q is quantity demanded and P is price. Construct the market demand curve for the public good. If a company can produce the public good at a constant marginal cost of $30, what is the market equilibrium price and quantity of...
Consider the hypothetical example of Dominion Island that has firms producing only two goods, gold and...
Consider the hypothetical example of Dominion Island that has firms producing only two goods, gold and cotton, the proceeds of which it uses to purchase other goods and services from neighbouring islands through its banks. Assuming that all other required institutions in an economy are prevalent in this island, discuss the circular flow of income and spending in Dominion Island. No diagram is required.
Consider the hypothetical example of Dominion Island that has firms producing only two goods, gold and...
Consider the hypothetical example of Dominion Island that has firms producing only two goods, gold and cotton, the proceeds of which it uses to purchase other goods and services from neighboring islands through its banks. Assuming that all other required institutions in an economy are prevalent in this island, discuss the circular flow of income and spending in Dominion Island. No diagram is required.
Consider the hypothetical example of Dominion Island that has firms producing only two goods, gold and...
Consider the hypothetical example of Dominion Island that has firms producing only two goods, gold and cotton, the proceeds of which it uses to purchase other goods and services from neighbouring islands through its banks. Assuming that all other required institutions in an economy are prevalent in this island, discuss the circular flow of income and spending in Dominion Island. No diagram is required.
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT